U.S. Service Index Falls But Indicates Continued Growth In March

4/4/2012 10:20 AM ET

While activity in the U.S. service sector continued to expand in the month of March, the Institute for Supply Management released a report on Wednesday showing that the pace of growth in the sector slowed by more than economists had anticipated.

The ISM said its non-manufacturing index fell to 56.0 in March from 57.3 in February, although a reading above 50 indicates continued growth in the service sector. Economists had been expecting the index to edge down to a reading of 57.0.

"Respondents' comments remain mostly optimistic about business conditions," he added. "They indicate that increased discretionary spending reflects the increased confidence level of businesses and consumers. There is continued concern about cost pressures and the instability of fuel prices."

The bigger than expected drop by the headline index came as the business activity index fell to 58.9 in March from 62.6 in February, while the new orders index dipped to 58.8 from 61.2.

On the other hand, the employment index edged up to 56.7 in March from 55.7 in February, indicating a faster rate of job growth in the service sector.

The inventories index also crept up to 54.0 in March from 53.5 in February, pointing to the second consecutive month of inventory growth.

With regard to inflation, the prices index dropped to 63.9 in March from 68.4 in February but continued to indicate a notable increase in prices.

The ISM released a separate report on Monday showing that activity in the manufacturing sector expanded at a faster rate than economists had expected.

The index of activity in the manufacturing sector climbed to 53.4 in March from 52.4 in February, while economists had expected the index to edge up to a reading of 53.0.